Mohamed Abdel Moneim Ali Fayed+ali Ali Fayed+salah Eldin Ali Fayed For Judicial Review Of A Decision By The Commissioners Of Inland Revenue
| Jurisdiction | Scotland |
| Judge | Lord President,Lord Kirkwood,Lord MacLean |
| Date | 29 June 2004 |
| Court | Court of Session |
| Published date | 29 June 2004 |
| FIRST DIVISION, INNER HOUSE, COURT OF SESSION | |
| Lord President Lord Kirkwood Lord MacLean
| OPINION OF THE COURT delivered by THE LORD PRESIDENT in RECLAIMING MOTION in PETITION at the instance of (FIRST) MOHAMED ABDEL MONEIM ALI FAYED; (SECOND) ALI ALI FAYED; and (THIRD) SALAH ELDIN ALI FAYED Petitioners; for Judicial Review of a decision by the Commissioners of Inland Revenue _______ |
Act: Kean, Q.C., D.E.L. Johnston; Maclay Murray & Spens (Petitioner and Reclaimer)
Alt: Hodge Q.C., Paterson; D.S. Wishart (Respondents)
29 June 2004
[1]This is the Opinion of the Court to which all members of the court have contributed.
[2]The petitioners have reclaimed against the interlocutor of the Lord Ordinary dated 31 May 2002, refusing their petition for judicial review, in which they seek, inter alia, declarator that the Commissioners of Inland Revenue, the respondents, are obliged to abide by the Agreement dated 22 and 28 April 1997 (to which we will refer as the 1997 Agreement); reduction of the decision intimated by two letters dated 2 June 2000; and declarator that the continuing failure of the respondents to hold themselves bound by the 1997 Agreement is incompatible with the petitioners' Convention rights.
Introduction
[3]The petitioners are brothers. The first petitioner is resident in London. The second petitioner is resident in the United States of America, and the third petitioner is resident in Switzerland. The first and second petitioners are directors of various companies in the Harrods Group. The first petitioner is a United Kingdom taxpayer, and is regarded by the respondents for tax purposes as being resident and ordinarily resident in the United Kingdom. At least until 5 April 2000, if not thereafter, he was regarded by the respondents as not being domiciled in the United Kingdom. The second and third petitioners are regarded by the respondents for tax purposes as being neither resident nor domiciled in the United Kingdom.
[4]The 1997 Agreement is an example of a "forward tax agreement" which, in the present context, is an agreement in terms of which an individual will pay, and the respondents will accept, a specified sum in respect of designated future years of assessment in full and final settlement of income tax and capital gains tax to which the individual might otherwise have been liable by reason of the receipt of foreign remittances, or constructive remittances, in the United Kingdom. It appears that the respondents entered into such agreements from the early 1980s, if not before that time. If an individual is resident and ordinarily resident in the United Kingdom, and is not domiciled in the United Kingdom, he is chargeable to tax on United Kingdom-source income and capital gains in the normal way. However, in regard to foreign-source income and capital gains, he is taxable in the United Kingdom only in so far as they are remitted to the United Kingdom.
The 1997 Agreement
[5]This was constituted by the respondents' acceptance of an offer made by accountants on behalf of the petitioners and Emad Fayed, a deceased son of the first petitioner ("the family members"), in a letter dated 22 April 1997. It was in the following terms:
"We act for Mohamed Al-Fayed, Ali, Salah and Emad Fayed ("our clients"). We are instructed to make an offer to the Commissioners of Inland Revenue containing the following terms which will become a binding agreement (hereinafter called 'the Agreement') if that offer is accepted in the manner hereinafter indicated.
1Mohamed Al-Fayed, Ali, Salah and Emad Fayed will be treated by the Inland Revenue as not domiciled for all Years of Assessment covered by this Agreement. Only Mohamed Al-Fayed of our clients is currently regarded by the Inland Revenue as resident and ordinarily resident in the United Kingdom for tax purposes, but this letter covers the position for each of them over the period referred to below.
2Following recent discussions between representatives of our clients and Officers of the Inland Revenue, we are authorised to offer the payment of the sum of £240,000 in respect of each of the Years of Assessment ended 5 April 1998 to 2003 inclusive in full and final settlement of income tax or capital gains tax (and interest and penalties thereon) to which they become liable by reason of the receipt of foreign source income or capital gains including remittances, or constructive remittances, to the United Kingdom of funds or other assets from outside the United Kingdom which are assessable or may be assessable on them personally either singularly or jointly and in particular but without prejudice to the generality of the foregoing which are assessable or may be assessable:
(a)under Case IV, V or VI of Schedule D (as defined in section 18(3)
ICTA 1988), or
(b)under Case III of Schedule E (as defined in section 19(1) ICTA 1988),
or
(c)under Sections 1 and 12 and Chapter II of Part III TCGA 1992 in
respect of any chargeable gains arising on the disposal, or part disposal, of any asset as defined in Section 21(1) TCGA 1992 situated outside the United Kingdom by our clients, but only where the proceeds of the disposal, or part disposal, or the asset in question do not exceed £15 million.
For the purpose of this subparagraph:
(i)the provisions of Section 275 TCGA 1992 shall apply.
(ii)the disposal, or part disposal, of an asset shall be considered to
arise in any of the circumstances detailed in Chapter II of Part II of TCGA 1992.
3The payment in paragraph 2 above will also cover any assessment to tax in respect of emoluments chargeable to income tax under Schedule E by virtue of Section 154 ICTA 1988 where it can be shown that the provision of services or supplies etc., was habitually provided to our clients prior to 6 April, 1990. This is on the understanding that the cost of services or supplies etc., was then reimbursed to the company providing the particular services or supplies, if that was the practice prior to 6 April 1990, and continues to be reimbursed.
4It is agreed that the Inland Revenue may not pursue an appeal before the Commissioners against an assessment of emoluments under Sections 145 and 146 ICTA 1988 against our clients unless and until a decision is reached by the Appeal Commissioners, albeit subject to further appeal, in favour of the Inland Revenue in another case involving similar circumstances. In such circumstances our clients will be informed of the result of that other decision by the Inland Revenue and they will have the option within twelve months of the date of that notification to reimburse to the relevant company concerned amounts equivalent to the assessable benefit which might then be regarded as arising so that no liability arises subsequent to 5 April 1997. Only if our clients do not exercise that option will the Inland Revenue be able to pursue the appeal against emoluments chargeable by virtue of the said Sections 145 and 146.
5Each payment of £240,000 will be made on or before 31 January in each of the Years of Assessment ended 5 April, 1998 to 2003 inclusive.
6If at any time any of the said payments or any part thereof shall be in arrears and unpaid by the day specified herein then interest shall be payable upon the said payments or any balance thereof as remains unpaid at such rates as may from time to time be prescribed by the Taxes Acts for interest on overdue income tax from that day until the date of payment.
7If following demand being made by the Inland Revenue the payment or part of the payment referred to in paragraph 5 above shall remain unpaid 30 days after the due date for payment, the Commissioners of Inland Revenue shall be at liberty to seek recovery of such sum from our clients under this Agreement as may then remain due and unpaid together with any interest that shall have accrued thereon pursuant to paragraph 6 above.
8In the event that the Commissioners of Inland Revenue do not recover from our clients under this Agreement such sum as may then remain unpaid together with any interest that shall have accrued thereon pursuant to paragraph 6 above within six months of the date on which the Commissioners of Inland Revenue notify our clients that they are seeking to recover any sum from our clients pursuant to paragraph 7 above, then the Commissioners of Inland Revenue shall be at liberty to treat this Agreement as repudiated by our clients, in which event such assessments may be made on them and such other proceedings brought against them as may be necessary to recover duties, interest and penalties thought to be outstanding. Save as aforesaid this Agreement shall be irrevocable.
9Our clients will complete Tax Returns for the Years of Assessment ended 5 April 1998 to 2003 inclusive as follows. The sections of the Tax Returns requiring details of foreign source income and capital gains, including the legislation referred to in paragraph 2 above, will be completed 'as per the Agreement dated 28 April 1997'. All other sections of such Tax Returns referring to income and capital gains not covered by this Agreement will be completed as required and any such income and capital gains not covered by this Agreement will be assessable in the normal way.
10By accepting the terms of this Agreement, the Commissioners of Inland Revenue accept for all Years of Assessment referred to in paragraph 2 above that Mohamed Al-Fayed shall be treated as resident but not domiciled for all United Kingdom taxation purposes, including all Double Taxation agreements to which the United Kingdom is a signatory and inheritance tax. The same treatment will apply to any other of our clients who is resident in the United Kingdom in any Year of Assessment. Subject to paragraphs 7 and 8 above, the only other circumstances which would arise to vary or terminate this Agreement would be the death of either Mohamed Al-Fayed or Ali Fayed or the departure of Mohamed Al-Fayed from the United Kingdom so that he thereafter ceased...
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